1. Economics Unit 1

2. Economics

3. What do we mean when we say choices?  Does this mean everything we have to make a choice about?  Does your choice of what to wear have an effect or is affected by economics?  Does your choice of where to go for lunch have an affect or is affected by economics?

5.  There probably is enough food, clothes and shelter to satisfy everyone’s needs and desires, but not everyone will settle for the basics.

6.  Can somebody name a choice they have had to make in the past couple of days?

7. Rational Self-Interest  When we say choice is the key to economics, this doesn’t mean that people just make whatever choice they feel like. People look at economic choices and make their decisions based on something called Rational Self- Interest.

8.  Example…Remember the Martha Stewart case?In this case she took money out of a company that she knew was not going to turn a profit because she had information of a product of theirs was going to be taken off the market before anyone else knew about this situation. She would get caught doing this and eventually go to prison for a short period of time.

9. How did Martha practice rational self-interest?  She did make a choice based on rational self-interest though.  She made the choice to take her money out of the company, which she knew she would lose if she let it in. She did not think she would get in trouble for this, but she did. Although she did get in trouble, she made the decision that benefited herself the most with all the information she had available to her.

10. Economic Reasoning: Why are we a nation of couch potatoes? Capstone Unit 1 Lesson 1  We are going to see if we can use economic reasoning and apply it to a wide range of human behavior.  Specifically, this lesson uses it to examine why it is that America is becoming a land of couch potatoes.

11.  Exercise and diet have recently become an important issue in the United States.  Visual 1..\Capstone\Capstone Visuals\capstone_lesson1_visual.pdf..\Capstone\Capstone Visuals\capstone_lesson1_visual.pdf  Which well known people do Americans tend to admire?  How are Americans’ exercise and diet habits changing?  What is the Mystery?

12.  Speculate whether each statement is true or false.  Visual 2..\Capstone\Capstone Visuals\capstone_lesson1_vi sual.pdf..\Capstone\Capstone Visuals\capstone_lesson1_vi sual.pdf

13. Activity 1  Read the Activity  What is the economic view of choice?  How do choices influence people in respect to exercise and diet?  What is an opportunity cost?  What is an incentive?

14.  Why is money such an attractive incentive?  What incentives influence people in their decisions about exercise and diet?  How do the rules of the economic system influence people in their decisions about exercise and diet?

15.  What is voluntary trade?  How does voluntary trade influence people in their decisions about exercise and diet?  What does it mean to say that people’s choices have future consequences?

16.  How do future consequences influence people in their decisions about exercise and diet?

17. Solve the mystery

18. Principles of the Guide to Economic Reasoning?  People choose  People’s choices involve costs  People respond to incentives in predictable ways  People create economic systems that influence individual choices and incentives  People gain when they trade voluntarily  People’s choices have consequences that lie in the future

19. Scarcity  Scarcity is the main problem in economics. If there was not a problem of scarcity, the wants (things we desire) and the needs (things we must have to survive) would be fulfilled.

20. Free and Economic Goods  Free Good-  Does anybody know of a free good?  This good can also become known as a economic good ( ) because people in a polluted environment such as Los Angeles would love to breathe air that is pure, like that from the Rocky Mountains.

21. Shortage  You may confuse scarcity with a shortage ( )But an item that is scarce will always be so because of the economic wants and needs, an item that is in shortage can be in that state temporarily, like the gasoline shortage of the 70’s.

22.  Give an example of scarcity  Visual 1..\Capstone\Capstone Visuals\capstone_lesson2_visual.pdf..\Capstone\Capstone Visuals\capstone_lesson2_visual.pdf Scarcity and Abundance Unit 1 Lesson 2

23. Activity 1  Old economics textbooks collected in a bookcase near the teacher’s desk with a sign that says “free books, take as many as you want.” The books have been there for three years.  Old economics textbooks collected in a bookcase near the teacher’s desk with a sign that says “free books, take as many as you want.” Another sign posted in the hallway says “$10 paid for any recycled textbook. Bring books to Principal’s office.”

24.  One economics textbook, five students who wish to do well in the economics course, and an important test in class the next day.  One economics textbook, five students who are not taking economics, and an important test in class the next day.

25.  Petroleum in Japan, a country without its own oil fields without oil reserves  Petroleum in Saudi Arabia, a country with many oil fields and oil reserves

26. Scarce resources being treated as not scarce  Teachers assign unnecessary homework to their classes, not recognizing that the students have many assignments from many classes. The teachers do not bear the cost of the assignment overload (how to spend scarce study time?), so they may neglect to take scarcity into account when they assign students their homework.

27. Scarce resources being treated as not scarce  Land used as a site for new school buildings was once prime wildlife habitat. The people designing the school had no interest in wildlife, so to them there was no cost in using the land for construction of a school.

28. Activity 2  Which examples show people treating scarce resources as not scarce and which examples who people treating scarce resources as scarce?

29.  Water fountains in Rome flow continuously with water carried by viaducts from the Italian mountains. People walking in Rome quench their thirst by drinking from these fountains. But most of the water flows into the street and down the drains to a river that passes through the city.

30.  At closing time, restaurants in the United States are required to throw away all uneaten food. To meet health standards for food preparation and the safety of consumers, the food cannot be stored for use the next day. Also, the law prohibits restaurant employees form giving the food to the poor or dispersing it to local food banks.

31.  Oxygen is taken from the air and stored in containers. When divers wish to stay underwater for long periods of time, they purchase container-stored oxygen and breathe from it during their underwater activities.

32.  Pebbles are taken from a beach to build a walkway in a homeowner’s lawn. No one else wants the pebbles. The pebbles are not necessary for the lake’s ecosystem or animal habitat.

33.  A farmer has a water irrigation contract that requires the water user to use the entire allocation of water to water crops, whether or not all the water is needed for crop irrigation. If the farmer does not use all the water, he or she will receive a smaller allocation next year.

34. What is a Good?  Good –  Goods do not just come about though, there is something needed to make sure that these goods can be made.

35. What do you use to make goods?  Resources  Resources are needed to make goods. Resources are usually separated into three categories called the Factors of Production.

36. Factors of Production  Are ; the four groups of resources that are used to make all goods and services

38. Land ..

39. Labor

40. Capital Physical Capital – Human Capital – The skills and knowledge gained by a worker through education and experience Financial Capital -

41. Entrepreneurs/ Entrepreneurship  Are ambitious leaders who decide how to combine land, labor, and capital resources to create new goods and services  These are the people who make business possible.  They are the one’s who have the ambition to risk a lot to try and make a profit.  Some Famous Entrepreneurs Ray Kroc-McDonald’s Colonel Saunders-KFC Bill Gates-Microsoft J.Z.-Rockafella Records

42.  Economists say that all goods and services are scarce because the land, labor and capital used to create them are scarce.  Consider French Fries.  Started off as a potato in Idaho in a field  7.5 gallons of water irrigated the plot where it grew.  Nurtured with fertilizers and protected by pesticides  The potato was harvested, processed, frozen, and then transported to Seattle.  In Seattle it was fried in corn oil from Nebraska sprinkled with salt from Louisiana and eaten in a restaurant.  All of the resources used to make the French fries are scarce.  And this is just an example from a simple good such as a French fry.

43. Economic Magic: Creating Something from Nothing Capstone Unit 1 lesson 3  Picture yourself on vacation in spectacular Southeast Alaska, kayaking with a group of friends. You can’t believe you are there. You have never kayaked before in you life, but the school had a special deal enabling students to spend a few says sea kayaking and whale watching. It sounded greet, so you went along.  It’s the end of July. The weather is warm and the scenery is spectacular. You’ve had good times and easy paddling so far, but today you’ve noticed clouds gathering and a chill in the air. Still, you an your friends climb into the kayaks and get started, thinking tha tif it does rain you will be able to dry off later, after you travel the day’s course and make camp.  Just as you expected, rain begins to fall, and it shows no sign of stopping soon. The clouds get darker, the rain pours down harder and harder, and the wind comes up! It becomes difficult to paddle in the waves. You might be in trouble. Then a huge wave hits the kayak and very quickly you capsize. But you and your friends remember your safety training. You grab hold of the kayaks and paddles and swim for the shore. Thank goodness you were careful to travel near land at all times. Gasping for breath and shivering from exposure to the cold water, you eventually drag yourself up onto the shore.  Now you have a new problem. You and your friends are stranded on a small, deserted island and you don’t know how long you will have to be there. The nearest settlement is over 75 miles away. Your task: Survive!

44. Activity 1  Which of the resources listed there are scarce (have more than one valuable use) which are not scarce  Visual 1..\Capstone\Capstone Visuals\capstone_lesson3_visual.pdf..\Capstone\Capstone Visuals\capstone_lesson3_visual.pdf  Use your imagination to solve the problem, but remember to consider the opportunity cost of each of your choices  Get into groups  Review the island’s environment and the equipment you have left.  Figure out how to survive.

45.  What general type of behavior seems to be the same among groups of people trying to keep themselves alive? What choices are they making  What opportunity costs did people encounter in making their decisions?

46.  People in all economies must decide what to produce, how to produce it and for whom it will be produced. How did your decisions relate to these three questions? What did you make to eat or for shelter? How did you make it? Who made it? What natural resources were used? What tools were used? Did everyone get a share of what was produced? Did the goods produced go only to those who helped produce them? Did a leader decide who got what? Did those who did no work get any of the goods produced?

47.  Were your choices made randomly (by chance) or purposefully (considering alternatives)?  What alternatives did you consider before you made your choices about production and consumption?  How do anticipated costs and benefits explain the choices you made to survive?  Gain survival related benefits at the lowest possible costs.

48. Economic Approach  Two different football teams take different approaches to the game.  The Ravens take a defensive approach.  The Colts take an offensive approach.  In economics, economists take a different approach at real world issues and problems.  They take what is called the Economic Approach.

49. Economic Approach  (or economic way of thinking) which means that the principles of scarcity and rational self-interest are used in a specific way to search out answers to questions about the real world

50. Positive Analysis  In economics and rational self interest you try to keep your opinions and heart out of the game. You try to make decisions based on what the most readily available and accurate information is trying to portray to you. When you do this you make what is called positive analysis.  Positive analysis –

51. Normative Analysis  We are all humans, and we do have our own opinions, that is what separates us from computers or robots. And because of this, we do have a tendency to let our opinions get in the way. This is called normative analysis.  Normative Analysis –

52. Fallacy of Composition  If I see that the school is burning down and I run out as fast as I can this is in my best interest. I will probably get out before everyone else, and will not get hurt.  If everyone in the school were to do the same thing, there would be chaos and nobody would be guaranteed safety. This is why we practice fire drills.  This situation happens in economics too and is called the fallacy of composition  Fallacy of Composition –

53. Association as Causation  What if I were to tell you that every time we have a sunny day in September, my dog behaves better. This may be the case that every time there was a sunny day my dog behaved better, but he has also behaved good on non-sunny days in September and throughout the whole year. This is called association as causation  Association as Causation –

54. Micro v. Macro  Microeconomics-  Macroeconomics- The study of economics as a whole.  Example Micro takes a look at the activity of the individual consumer, whereas macro looks at the whole system.

55. To choose or not to choose? That is not the question? Capstone Unit 1 lesson 4  People often think they have no choice.  Todd recently purchased his own car on credit. He works at a part time job at an auto wrecking firm to earn the money he needs to make payments on his new car. Lately, his work in school has declined. When his teacher asked him if he was studying for the tests, he replied, “Not really. I’d like to study more, but I have no choice. I’ve got to keep working to pay off my car loan.”

56.  Did Todd have alternatives in his situation? What Alternatives does Todd have in addition to reducing his study time?  Activity 1  What was Ashley’s problem?  What alternatives did Ashley have?  What wee the costs of each alternative?  What were the benefits?  Complete the grids in activity 1

57. Rules influence economic behavior Capstone Unit 1 lesson 5  Visual 1..\Capstone\Capstone Visuals\capstone_lesson5_visual.pdf..\Capstone\Capstone Visuals\capstone_lesson5_visual.pdf  Quiz time Do your very best on the quiz Make no marks on the quiz Mark all answers on Activity 2 First Answer sheet Finish in five minutes  We will correct quizzes once everyone is done

58. Rules Incentives Choices Rules influence incentives, and incentives influence choices

59.  All countries establish rules for their economies, and these rules influence behavior. Some rules encourage people to use resources and exchange goods and services. Some rules discourage people from using resources and exchanging goods and services.

60.  Activity 4  Do the rules encourage or discourage economic activity.  A.  B.  C.  D.  E.

61. Opportunity Cost  The highest valued alternative that must be forgone when a choice is made  College is a perfect example.  Say you go to college for four years. We could figure out the dollar amount of the opportunity cost for going to college.  If you did not go to college you probably would go out and get a job. The job you get we will say will pay $20,000 a year. So you take that X 4 years and you get $80,000. Plus you must pay tuition and other expenses for 4 years. So say they amount to $12,000 a year X 4 years = $48,000. You add the two and you get $128,000 opportunity cost to go to college and pursue a better career.

62. Tradeoff  In decisions that require a choice we choose what we think will benefit us the most with the information we have available which is called rational self- interest. When we choose we often choose one thing over another. This is called a tradeoff.  Tradeoff-

63. Marginal  Marginal cost-  Marginal Benefit- additional benefit

64. Efficiency

65. Trade  If countries of the world specialize and trade their goods to each other each country will end up with more than if they all tried to produce their own of everything.  What are some things the US trades for and trades with other countries?  Oil, Rice, Coffee, Etc.  Food, Steel, Coal Etc.

66. Comparative Advantage  When we talk about trade, we are always looking to see who has the best suited environment to produce a good or service. In economics if a country is better suited to produce a good than another country, we give a name to the type of situation created.  Comparative Advantage –

67.  Example: If you and your friend are putting together a band or group in music. You both look at your talents. You realize that you are better at marketing and booking gigs and your fried is really better at the musical aspect of the group. You have a comparative advantage in the business realm of the band whereas your friend has a comparative advantage in the musical realm. You would use your skills and trade (or partner) with your friend to capture their musical abilities.

68. Division of Labor  When you think of specialization, another concept in the business world comes to mind. There was an innovation in the production process that happened early in the 20th century.  Does anyone know what production innovation helped change the consumer market and turn it into a place where things can be produced more easily?  Division of Labor-